The New Hampshire Advantage in One Chart

J. Scott Moody

Aug 7, 2016

The New Hampshire Advantage in One Chart

Jan 09, 2017

There
is perhaps no greater goal for the Granite Institute than fighting to
preserve and extend the New Hampshire Advantage. Historically this means
no income or sales tax, but maintaining our advantage into the future
will entail other important policy changes such as increasing
educational choices and enacting right-to-work.

That
said, New Hampshire has already gained major economic benefits thanks
to the New Hampshire Advantage. The chart above illustrates the vast
differences in growth with our neighboring state—Maine. These two states
are alike in many ways—geographically, climatically, demographically,
and culturally—that it provides for a near perfect natural experiment.
Why? Because there is one area where the two states diverge
greatly—public policy.

As
shown in the chart, between 1929 and 1950, Maine and New Hampshire had
similar per household incomes (adjusted for inflation) and private
sectors (as a percent of personal income). In 1951 Maine enacted the
sales tax, which led to increased public sector spending and crowded-out
the private sector. Consequently, New Hampshire’s per household income
began to steadily pull away from Maine.

This
trend accelerated in 1969 when Maine enacted their income tax—a few
years after the federal government enacted Medicaid. With this new
source of revenue, Maine was able to dramatically expand its welfare
system, especially Medicaid. In fact, as of FY 2010, Maine had the third
highest percentage of population on Medicaid at 31 percent.

In
stark contrast, New Hampshire remains the only state in the Union to
have not enacted a state or local sales tax or state or local income
tax.

This
difference in public policy has resulted in dramatic differences in the
size of each state’s private sector. Between 1929 and 2015, Maine’s
private sector shrunk by -28.9 percent to 65.4 percent from 92 percent
and is now only the 42nd largest private sector in the country. New
Hampshire, on the other hand, has seen its private sector shrink by a
much smaller 14.9 percent to 76.9 percent from 90.4 percent and is now
the 2nd largest private sector in the country.

As
a result, New Hampshire’s private sector in 2015 is 16.6 percent larger
than Maine’s—76.9 percent and 65.4 percent respectively. Consequently,
New Hampshire’s per household income is now 39 percent higher than
Maine’s—$134,848 and $96,980, respectively.

Ultimately
this difference matters because personal income is an important
economic measure of a family’s well-being. Higher levels of personal
income mean that a family is able to buy more goods and services such as
a home, a car, education and healthcare.

Finally,
this also provides very important evidence as to why New Hampshire
policymakers must make repealing Obamacare’s Medicaid expansion a
priority in the next legislative session. Such expansion will ultimately
result in a smaller private sector and less income for all Granite
Staters.